SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549-1004
-----------------------------------------------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 0-20793
Smithway Motor Xpress Corp.
(Exact name of registrant as specified in its charter)
Nevada 42-1433844
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2031 Quail Avenue
Fort Dodge, Iowa 50501
(515) 576-7418
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date (November 8, 2002).
Class A Common Stock, $.01 par value: 3,846,821 shares
Class B Common Stock, $.01 par value: 1,000,000 shares
Exhibit Index is on Page 20.
Page 1
PART I
FINANCIAL INFORMATION
PAGE
NUMBER
Item 1. Financial Statements....................................................................... 3-9
Condensed Consolidated Balance Sheets as of December 31, 2001 and
September 30, 2002 (unaudited)................................................... 3-4
Condensed Consolidated Statements of Operations for the three and nine months
ended September 30, 2001, and 2002 (unaudited).................................... 5
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001, and 2002 (unaudited).......................................... 6-7
Notes to Condensed Consolidated Financial Statements (unaudited)........................... 8-9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................ 10-17
Item 3. Quantitative and Qualitative Disclosures About Market Risks................................ 18
Item 4. Controls and Procedures.................................................................... 18
PART II
OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 19
Item 2. Changes in Securities and Use of Proceeds................................................... 19
Item 3. Defaults Upon Senior Securities............................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders......................................... 19
Item 5. Other Information........................................................................... 19
Item 6. Exhibits and Reports on Form 8-K............................................................ 20-21
Page 2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, September 30,
2001 2002
--------------- ----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 722 $ 652
Receivables:
Trade..................................................................... 13,649 17,418
Other..................................................................... 1,020 686
Recoverable income taxes.................................................. 1,820 7
Inventories.................................................................. 1,561 1,071
Deposits, primarily with insurers............................................ 539 751
Prepaid expenses............................................................. 926 1,667
Deferred income taxes........................................................ 1,726 1,720
--------------- ----------------
Total current assets................................................... 21,963 23,972
--------------- ----------------
Property and equipment:
Land......................................................................... 1,548 1,548
Buildings and improvements................................................... 8,175 8,210
Tractors..................................................................... 79,472 70,889
Trailers..................................................................... 44,784 43,045
Other equipment.............................................................. 7,318 8,046
--------------- ----------------
141,297 131,738
Less accumulated depreciation................................................ 62,252 63,098
--------------- ----------------
Net property and equipment............................................. 79,045 68,640
--------------- ----------------
Goodwill........................................................................ 5,016 5,016
Other assets.................................................................... 412 370
--------------- ----------------
$ 106,436 $ 97,998
=============== ================
See accompanying notes to condensed consolidated financial statements. Page 3
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31, September 30,
2001 2002
--------------- ----------------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt......................................... $ 12,052 $ 11,707
Accounts payable............................................................. 4,589 6,567
Accrued compensation......................................................... 2,258 3,102
Accrued loss reserves........................................................ 2,327 2,487
Other accrued expenses....................................................... 792 564
--------------- ----------------
Total current liabilities.............................................. 22,018 24,427
Long-term debt, less current maturities......................................... 37,105 30,228
Deferred income taxes........................................................... 14,862 12,620
Line of credit.................................................................. 585 2,806
--------------- ----------------
Total liabilities...................................................... 74,570 70,081
--------------- ----------------
Stockholders' equity:
Preferred stock.............................................................. - -
Common stock:
Class A................................................................... 40 40
Class B................................................................... 10 10
Additional paid-in capital................................................... 11,394 11,393
Retained earnings............................................................ 20,842 16,888
Reacquired shares, at cost................................................... (420) (414)
--------------- ----------------
Total stockholders' equity............................................. 31,866 27,917
--------------- ----------------
$ 106,436 $ 97,998
=============== ================
See accompanying notes to condensed consolidated financial statements. Page 4
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share data)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2001 2002 2001 2002
--------------- ------------ ------------ --------------
Operating revenue:
Freight.............................................$ 48,389 $ 43,132 $ 147,209 $ 129,232
Other............................................... 182 140 495 499
--------------- ------------ ------------ --------------
Operating revenue............................... 48,571 43,272 147,704 129,731
--------------- ------------ ------------ --------------
Operating expenses:
Purchased transportation............................ 17,619 16,192 53,963 48,034
Compensation and employee benefits.................. 13,742 12,138 41,441 39,282
Fuel, supplies, and maintenance..................... 8,480 6,929 26,163 20,436
Insurance and claims................................ 1,922 1,620 3,954 5,072
Taxes and licenses.................................. 956 872 2,860 2,628
General and administrative.......................... 1,955 1,708 5,996 5,445
Communications and utilities........................ 496 418 1,620 1,357
Depreciation and amortization....................... 4,515 4,043 13,610 12,088
--------------- ------------ ------------ --------------
Total operating expenses........................ 49,685 43,920 149,607 134,342
--------------- ------------ ------------ --------------
Loss from operations....................... (1,114) (648) (1,903) (4,611)
Financial (expense) income
Interest expense.................................... (741) (497) (2,422) (1,582)
Interest income..................................... 10 5 36 22
--------------- ------------ ------------ --------------
Loss before income taxes................... (1,845) (1,140) (4,289) (6,171)
Income tax benefit...................................... (633) (383) (1,405) (2,216)
--------------- ------------ ------------ --------------
Net loss...................................$ (1,212) $ (757) $ (2,884) $ (3,955)
=============== ============ ============ ==============
Basic and diluted loss per common share.................$ (0.25) $ (0.16) $ (0.59) $ (0.82)
=============== ============ ============ ==============
Basic and diluted weighted average common shares
outstanding.......................................... 4,845,980 4,846,021 4,845,792 4,845,528
=============== ============ ============ ==============
See accompanying notes to condensed consolidated financial statements. Page 5
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine months Ended
September 30,
------------------------------
2001 2002
-------------- ---------------
Cash flows from operating activities:
Net loss...........................................................................$ (2,884)$ (3,955)
-------------- ---------------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization.................................................... 13,610 12,088
Deferred income taxes............................................................ (583) (2,236)
Stock bonuses.................................................................... 9 -
Changes in:
Receivables.................................................................... (4,483) (1,622)
Inventories.................................................................... 3 490
Deposits, primarily with insurers.............................................. (204) (212)
Prepaid expenses............................................................... (118) (741)
Accounts payable and other accrued liabilities................................. 1,000 2,754
-------------- ---------------
Total adjustments............................................................. 9,234 10,521
-------------- ---------------
Net cash provided by operating activities..................................... 6,350 6,566
-------------- ---------------
Cash flows from investing activities:
Payments for acquisitions.......................................................... (2,954) -
Purchase of property and equipment................................................. (1,399) (1,076)
Proceeds from the sale of property and equipment................................... 1,101 4,064
Other ............................................................................. (37) 42
-------------- ---------------
Net cash (used in) provided by investing activities........................... (3,289) 3,030
-------------- ---------------
Cash flows from financing activities:
Borrowings on line of credit....................................................... - 114,965
Payments on line of credit......................................................... - (112,744)
Proceeds from long-term debt....................................................... 16,545 -
Principal payments on long-term debt............................................... (19,997) (11,893)
Change in net checks issued in excess of cash balances............................. 307 -
Other.............................................................................. (165) 6
-------------- ---------------
Net cash used in financing activities......................................... (3,310) (9,666)
-------------- ---------------
Net increase in cash and cash equivalents..................................... (249) (70)
Cash and cash equivalents at beginning of period..................................... 349 722
-------------- ---------------
Cash and cash equivalents at end of period...........................................$ 100 $ 652
============== ===============
See accompanying notes to condensed consolidated financial statements. Page 6
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(Unaudited)
(Dollars in thousands)
Nine months Ended
September 30,
------------------------------
2001 2002
-------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest......................................................................$ 2,427 $ 1,621
Income tax.................................................................... (5) (1,794)
============== ===============
Supplemental schedules of noncash investing and financing activities:
Notes payable issued for tractors and trailers................................$ 2,486 $ 4,671
Issuance of stock bonuses..................................................... 9 -
============== ===============
Cash payments for acquisitions:
Revenue equipment.............................................................$ 2,088 $ -
Goodwill...................................................................... 526 -
Other assets (net)............................................................ 340 -
-------------- ---------------
$ 2,954 $ -
============== ===============
See accompanying notes to condensed consolidated financial statements. Page 7
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements include the accounts of
Smithway Motor Xpress Corp., a Nevada holding company, and its four wholly
owned subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
The condensed consolidated financial statements have been prepared, without
audit, in accordance with accounting principles generally accepted in the
United States of America, pursuant to the published rules and regulations
of the Securities and Exchange Commission. In the opinion of management,
the accompanying condensed consolidated financial statements include all
adjustments which are necessary for a fair presentation of the results for
the interim periods presented, such adjustments being of a normal recurring
nature. Certain information and footnote disclosures have been condensed or
omitted pursuant to such rules and regulations. The December 31, 2001
Condensed Consolidated Balance Sheet was derived from the audited balance
sheet of the Company for the year then ended. It is suggested that these
condensed consolidated financial statements and notes thereto be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Form 10-K for the year ended December 31, 2001.
Results of operations in interim periods are not necessarily indicative of
results to be expected for a full year.
Note 2. Effect of New Accounting Standards
Statement of Financial Accounting Standard (SFAS) 142, Goodwill and Other
Intangible Assets, became effective for the Company on January 1, 2002.
Under SFAS 142, which establishes new accounting and reporting requirements
for goodwill and other intangible assets, all goodwill amortization ceased
effective January 1, 2002. At adoption, the Company tested for impairment
of its goodwill by comparing the fair value of the Company to its carrying
value. Fair value was based upon an independent appraisal and indicated
that the Company's goodwill was not impaired. On an ongoing basis (absent
any impairment indicators), the Company expects to perform the impairment
tests annually during the fourth quarter.
The following table reflects the consolidated results adjusted as though
the adoption of SFAS 142 occurred as of the beginning of the three and nine
month periods ended September 30, 2001:
Three months ended Nine months ended
September 30, September 30,
(Dollars in thousands, except per share amounts) 2001 2002 2001 2002
---------------------------------------------------------
Net loss:
As reported................................................$ (1,212) $ (757) $ (2,884) $ (3,955)
Goodwill amortization, net of tax.......................... 114 - 342 -
----------------------------------------------------------
Adjusted net loss..........................................$ (1,098) $ (757) $ (2,542) $ (3,955)
==========================================================
Basic and diluted net loss per share:
As reported................................................$ (0.25) $ (0.16) $ (0.59) $ (0.82)
Goodwill amortization...................................... 0.02 - 0.06 -
----------------------------------------------------------
Adjusted basic and diluted net loss per share..............$ (0.23) $ (0.16) $ (0.53) $ (0.82)
==========================================================
On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement establishes a
single accounting model for the impairment or disposal of long-lived
assets. Upon adoption of SFAS No. 144, there was no material impact on the
Company's results of operations or financial condition.
Page 8
SMITHWAY MOTOR XPRESS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, continued
(Unaudited)
Note 3. Net earnings per common share
Basic earnings per share have been computed by dividing net earnings by the
weighted-average outstanding Class A and Class B common shares during each
of the quarters. Diluted earnings per share have been calculated by also
including in the computation the effect of employee stock options,
nonvested stock, and similar equity instruments granted to employees as
potential common shares. Because the Company suffered a net loss for the
three and nine months ended September 30, 2001 and 2002, the effects of
potential common shares were not included in the calculation as their
effects would be anti-dilutive. Stock options outstanding at September 30,
2001, and 2002, totaled 600,525 and 594,525, respectively.
Page 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
Except for the historical information contained herein, the discussion in
this quarterly report on Form 10-Q contains forward-looking statements that
involve risk, assumptions, and uncertainties that are difficult to predict.
Words such as "believe," "may," "could," "expects," "likely," variations of
these words, and similar expressions, are intended to identify such
forward-looking statements. The Company claims the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995 for all forward-looking statements. The Company's actual
results could differ materially from those discussed herein. Without limitation,
factors that could cause or contribute to such differences include economic
recessions or downturns in customers' business cycles, excessive increases in
capacity within truckload markets, surplus inventories, decreased demand for
transportation services offered by the Company, increases or rapid fluctuation
in inflation, interest rates, fuel prices and fuel hedging, the availability and
costs of attracting and retaining qualified drivers and owner-operators,
increasing insurance premiums and deductible amounts related to accident, cargo,
workers' compensation, health, and other claims, seasonal factors such as harsh
weather conditions that increase operating costs, the prices of new equipment
and resale value of used equipment, regulatory requirements that increase costs
and decrease efficiency, including new emissions standards, changes in
management, obtaining financing on acceptable terms, and the ability to
negotiate, consummate, and integrate acquisitions. Readers should review and
consider the various disclosures made by the Company in its press releases,
stockholder reports, and public filings, as well as the factors explained in
greater detail in the Company's annual report on Form 10-K.
The Company's fiscal year ends on December 31 of each year. Thus, this
report discusses the third quarter and first nine months of the Company's 2001
and 2002 fiscal years.
For the three months ended September 30, 2002, operating revenue decreased
10.9% to $43.3 million from $48.6 million during the same quarter in 2001. Net
loss was $757,000, or ($0.16) per diluted share, compared with net loss of $1.2
million, or ($0.25) per diluted share, during the 2001 quarter. For the nine
months ended September 30, 2002, operating revenue decreased 12.2% to $129.7
million from $147.7 million during the same period in 2001. Net loss was $4.0
million, or ($0.82) per diluted share, compared with net loss of $2.9 million,
or ($0.59) per diluted share, during the 2001 period.
The Company operates a tractor-trailer fleet comprised of both
Company-owned vehicles and vehicles obtained under leases from independent
contractors and third-party finance companies. Fluctuations among expense
categories may occur as a result of changes in the relative percentage of the
fleet obtained through equipment that is owned versus equipment that is leased
from independent contractors or financing sources. Costs associated with revenue
equipment acquired under operating leases or through agreements with independent
contractors are expensed as "purchased transportation." For these categories of
equipment the Company does not incur costs such as interest and depreciation as
it might with owned equipment. In addition, independent contractor tractors,
driver compensation, fuel, communications, and certain other expenses are borne
by the independent contractors and are not incurred by the Company. Obtaining
equipment from independent contractors and under operating leases reduces
capital expenditures and on-balance sheet leverage and effectively shifts
expenses from interest to "above the line" operating expenses. The fleet profile
of acquired companies and the Company's relative recruiting and retention
success with Company-employed drivers and independent contractors will cause
fluctuations from time-to-time in the percentage of the Company's fleet that is
owned versus obtained from independent contractors and under operating leases.
Page 10
Results of Operations
The following table sets forth the percentage relationship of certain items
to operating revenue for the three and nine months ended September 30, 2001 and
2002:
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2002 2001 2002
------------ ------------ ------------ ------------
Operating revenue..................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses
Purchased transportation............................ 36.3 37.4 36.5 37.0
Compensation and employee benefits.................. 28.3 28.1 28.1 30.3
Fuel, supplies, and maintenance..................... 17.5 16.0 17.7 15.8
Insurance and claims................................ 4.0 3.7 2.7 3.9
Taxes and licenses.................................. 2.0 2.0 1.9 2.0
General and administrative.......................... 4.0 3.9 4.1 4.2
Communications and utilities........................ 1.0 1.0 1.1 1.0
Depreciation and amortization....................... 9.3 9.3 9.2 9.3
------------ ------------ ------------ ------------
Total operating expenses.......................... 102.3 101.5 101.3 103.6
------------ ------------ ------------ ------------
Loss from operations.................................. (2.3) (1.5) (1.3) (3.6)
Interest expense (net)................................ (1.5) (1.1) (1.6) (1.2)
------------ ------------ ------------ ------------
Loss before income taxes.............................. (3.8) (2.6) (2.9) (4.8)
Income tax benefit.................................... (1.3) (0.9) (0.9) (1.7)
------------ ------------ ------------ ------------
Net loss.............................................. (2.5)% (1.7)% (2.0)% (3.0)%
============ ============ ============ ============
Comparison of three months ended September 30, 2002 with three months ended
September 30, 2001
Operating revenue decreased $5.3 million (10.9%), to $43.3 million during
the 2002 quarter from $48.6 million during the 2001 quarter. Revenue declined
primarily because slightly higher revenue per seated tractor and fewer unseated
tractors were more than offset by fewer weighted average tractors, decreased
fuel surcharge revenue, and decreased brokerage revenue. Revenue per seated
tractor per week improved slightly to $2,477 in the 2002 quarter from $2,453 in
the 2001 quarter. Additionally, the Company was able to achieve a $.03 increase
in revenue per loaded mile, net of surcharges, to $1.38 in the 2002 quarter from
$1.35 in the 2001 quarter. Weighted average tractors decreased 11.4%, to 1,359
during the 2002 quarter from 1,534 during the 2001 quarter due to a decrease in
equipment provided by independent contractors and a decrease in Company-owned
tractors. Average revenue per tractor per week (excluding revenue from brokerage
operations and fuel surcharges) increased to $2,273 during the 2002 quarter from
$2,221 during the 2001 quarter, due to a lower number of unseated company
tractors and a slight improvement in freight demand. A $690,000 decrease in fuel
surcharge revenue to $942,000 in the 2002 quarter from $1.6 million in the 2001
quarter also contributed to the decrease in operating revenue. Finally,
brokerage revenue decreased by $437,000.
Purchased transportation consists primarily of payments to independent
contractor providers of revenue equipment, expenses related to brokerage
activities, and payments under operating leases of revenue equipment. Purchased
transportation decreased $1.4 million (8.1%), to $16.2 million in the 2002
quarter from $17.6 million in the 2001 quarter. This reflects a decrease in
freight hauled by independent contractors and broker carriers and a $304,000
decrease in payments to independent contractors and brokers for fuel surcharges.
Management believes the decline in independent contractors is attributable to
high insurance costs, tighter credit standards, and slow freight demand which
have diminished the pool of drivers interested in becoming or remaining
independent contractors. Purchased transportation increased to 37.4% in the 2002
quarter from 36.3% in the 2001 quarter reflecting an increase in the percentage
of total revenue attributable to freight hauled by independent contractors and
brokers.
Compensation and employee benefits decreased $1.6 million (11.7%), to $12.1
million in the 2002 quarter from $13.7 million in the 2001 quarter. As a
percentage of revenue, compensation and employee benefits decreased to 28.1% of
revenue in the 2002 quarter from 28.3% in the 2001 quarter. The decrease was
primarily attributable to a decrease in the percentage of the Company's fleet
supplied by seated Company-owned equipment and a reduction in non-driver
personnel.
Page 11
Fuel, supplies, and maintenance decreased $1.6 million (18.3%), to $6.9
million in the 2002 quarter from $8.5 million in the 2001 quarter. As a
percentage of revenue, fuel, supplies, and maintenance decreased to 16.0% of
revenue for the 2002 quarter compared with 17.5% for the 2001 quarter. This was
the result of a decrease in average fuel prices, to $1.30 per gallon in the 2002
quarter from $1.40 per gallon in the 2001 quarter and a decrease in the
percentage of the Company's fleet supplied by seated Company-owned equipment,
partially offset by increased maintenance expense. Fuel surcharge revenue
attributable to loads hauled by Company trucks decreased to $537,000 in the 2002
quarter from $923,000 in the 2001 quarter. Fuel expense, net of surcharges, may
be affected in the future by the collectibility of fuel surcharges, as well as
by lower fuel mileage due to government mandated emissions standards. The
Company extended the trade cycle on its tractor fleet, which resulted in an
increase in the number of required repairs.
Insurance and claims decreased $302,000 (15.7%), to $1.6 million in the
2002 quarter from $1.9 million in the 2001 quarter. As a percentage of revenue,
insurance and claims decreased to 3.7% of revenue in the 2002 quarter compared
with 4.0% in the 2001 quarter. Insurance and claims expense will vary based on
the frequency and severity of claims, the premium expense, and the level of
self-insured retention.
Taxes and licenses decreased $84,000 (8.8%), to $872,000 in the 2002
quarter from $956,000 in the 2001 quarter. As a percentage of revenue, taxes and
licenses remained constant at 2.0% of revenue in both quarters.
General and administrative expenses decreased $247,000 (12.6%), to $1.7
million in the 2002 quarter from $2.0 million in the 2001 quarter. As a
percentage of revenue, general and administrative expenses decreased to 3.9% of
revenue in the 2002 quarter compared with 4.0% in the 2001 quarter.
Communications and utilities decreased $78,000 (15.7%), to $418,000 in the
2002 quarter from $496,000 in the 2001 quarter. As a percentage of revenue,
communications and utilities remained constant at 1.0% in both quarters.
Depreciation and amortization decreased $472,000 (10.5%), to $4.0 million
in the 2002 quarter from $4.5 million in the 2001 quarter. This reduction
reflects a decrease in company-owned equipment. Additionally, adoption of SFAS
142 caused amortization of goodwill to decrease to $0 in the 2002 quarter from
$185,000 in the 2001 quarter. As a percentage of revenue, depreciation and
amortization remained constant at 9.3% of revenue in both quarters. Depreciation
expense per tractor is expected to rise in the future as the cost of new
tractors has increased, and will continue to increase due to the increased cost
of new engines that comply with new emissions standards.
Interest expense (net) decreased $239,000 (32.7%), to $492,000 in the 2002
quarter from $731,000 in the 2001 quarter reflecting a decrease in average
outstanding debt and lower interest rates. As a percentage of revenue, interest
expense (net) decreased to 1.1% of revenue in the 2002 quarter compared with
1.5% in the 2001 quarter.
As a result of the foregoing, the Company's pretax margin was (2.6%) in the
2002 quarter compared with (3.8%) in the 2001 quarter.
The Company's income tax benefit for the 2002 quarter was $383,000, or
33.6% of loss before income taxes. The Company's income tax benefit for the 2001
quarter was $633,000, or 34.3% of loss before income taxes. In both quarters the
effective tax rate differs from the expected combined tax rate for a company
headquartered in Iowa because of the cost of nondeductible driver per diem
expense absorbed by the Company. The impact of the Company's paying per diem
travel expenses varies depending upon the ratio of Company drivers to
independent contractors and the Company's pretax earnings.
As a result of the factors described above, net loss was $757,000 (1.7% of
revenue) in the 2002 quarter, compared with $1.2 million (2.5% of revenue) in
the 2001 quarter.
Page 12
Comparison of nine months ended September 30, 2002 with nine months ended
September 30, 2001
Operating revenue decreased $18.0 million (12.2%), to $129.7 million during
the 2002 period from $147.7 million during the 2001 period. Revenue declined
primarily because higher revenue per seated tractor was more than offset by
fewer weighted average tractors, more unseated tractors, decreased fuel
surcharge revenue, and decreased brokerage revenue. Revenue per seated tractor
per week increased slightly to $2,426 in the 2002 period from $2,419 in the 2001
period. Additionally, the Company was able to achieve a $.02 increase in revenue
per loaded mile, net of surcharges, to $1.36 in the 2002 period from $1.34 in
the 2001 period. Weighted average tractors decreased 5.7%, to 1,447 during the
2002 period from 1,536 during the 2001 period due to a decrease in equipment
provided by owner operators and a decrease in Company-owned equipment. Average
revenue per tractor per week (excluding revenue from brokerage operations and
fuel surcharges) decreased to $2,156 during the 2002 period from $2,246 during
the 2001 period, due to a higher number of unseated company tractors as well as
weak Midwestern freight demands, which caused a combination of fewer loads,
higher non-revenue miles, more layovers, and rate pressure. A $3.6 million
decrease in fuel surcharge revenue to $1.8 million in the 2002 period from $5.4
million in the 2001 period also contributed to the decrease in operating
revenue. Finally, lower freight demand caused brokerage revenue to decrease by
$1.5 million.
Purchased transportation consists primarily of payments to independent
contractor providers of revenue equipment, expenses related to brokerage
activities, and payments under operating leases of revenue equipment. Purchased
transportation decreased $5.9 million (11.0%), to $48.0 million in the 2002
period from $54.0 million in the 2001 period. This reflects a decrease in
freight hauled by independent contractors and broker carriers and a $1.6 million
decrease in payments to independent contractors and brokers for fuel surcharges.
Management believes the decline in independent contractors is attributable to
high insurance costs, tighter credit standards, and slow freight demand which
have diminished the pool of drivers interested in becoming or remaining
independent contractors. As a percentage of revenue, purchased transportation
increased to 37.0% in the 2002 period from 36.5% in the 2001 period reflecting
an increase in the percentage of total revenue attributable to freight hauled by
independent contractors and brokers.
Compensation and employee benefits decreased $2.2 million (5.2%), to $39.3
million in the 2002 period from $41.4 million in the 2001 period. As a
percentage of revenue, compensation and employee benefits increased to 30.3% of
revenue in the 2002 period from 28.1% in the 2001 period. The increase was
primarily attributable to higher workers' compensation claims and premiums and
the increase in wages paid to drivers for unloaded miles, which was partially
offset by a decrease in the percentage of the Company's fleet supplied by seated
Company-owned equipment and a reduction in non-driver personnel.
Fuel, supplies, and maintenance decreased $5.7 million (21.9%), to $20.4
million in the 2002 period from $26.2 million in the 2001 period. As a
percentage of revenue, fuel, supplies, and maintenance decreased to 15.8% of
revenue for the 2002 period compared with 17.7% for the 2001 period. This was
the result of a decrease in average fuel prices, to $1.22 per gallon in the 2002
period from $1.42 per gallon in the 2001 period and a decrease in the percentage
of the Company's fleet supplied by seated Company-owned equipment, partially
offset by increased maintenance expense. Fuel surcharge revenue attributable to
loads hauled by Company trucks decreased to $1.0 million in the 2002 period from
$3.0 million in the 2001 period. Fuel expense, net of surcharges, may be
affected in the future by the collectibility of fuel surcharges, as well as by
lower fuel mileage if government mandated emissions standards are implemented.
The Company extended the trade cycle on its tractor fleet, which resulted in an
increase in the number of required repairs.
Insurance and claims increased $1.1 million (28.3%), to $5.1 million in the
2002 period from $4.0 million in the 2001 period. As a percentage of revenue,
insurance and claims increased to 3.9% of revenue in the 2002 period compared
with 2.7% in the 2001 period. The increase was attributable to a substantial
increase in insurance premiums on July 1, 2001, when the Company's insurance
policies were renewed. Insurance and claims expense will vary based on the
frequency and severity of claims, the premium expense, and the level of
self-insured retention.
Taxes and licenses decreased $232,000 (8.1%), to $2.6 million in the 2002
period from $2.9 million in the 2001 period. As a percentage of revenue, taxes
and licenses remained essentially constant at 2.0% of revenue in the 2002 period
compared to 1.9% in the 2001 period.
Page 13
General and administrative expenses decreased $551,000 (9.2%), to $5.4
million in the 2002 period from $6.0 million in the 2001 period. As a percentage
of revenue, general and administrative expenses remained essentially constant at
4.2% in the 2002 period compared to 4.1% in the 2001 period. Cost saving efforts
have been successful in reducing the dollars spent for general and
administrative expenses.
Communications and utilities decreased $263,000 (16.2%), to $1.4 million in
the 2002 period from $1.6 million in the 2001 period. As a percentage of
revenue, communications and utilities remained essentially constant at 1.0% in
the 2002 period compared to 1.1% in the 2001 period.
Depreciation and amortization decreased $1.5 million (11.2%), to $12.1
million in the 2002 period from $13.6 million in the 2001 period. This reduction
reflects a gain on the sale of excess trailers of $649,000 and a decrease in
Company-owned equipment. Additionally, adoption of SFAS 142 caused amortization
of goodwill to decrease to $0 in the 2002 period from $517,000 in the 2001
period. As a percentage of revenue, depreciation and amortization increased to
9.3% of revenue in the 2002 period compared with 9.2% in the 2001 period
reflecting lower revenue per tractor per week and a larger number of unseated
units being depreciated, without an offsetting revenue stream. Depreciation
expense per tractor is expected to rise in the future as the cost of new
tractors has increased, and will continue to increase due to the increased cost
of new engines that comply with new emissions standards.
Interest expense (net) decreased $826,000 (34.6%), to $1.6 million in the
2002 period from $2.4 million in the 2001 period reflecting a decrease in
average outstanding debt and lower interest rates. As a percentage of revenue,
interest expense (net) decreased to 1.2% of revenue in the 2002 period compared
with 1.6% in the 2001 period.
As a result of the foregoing, the Company's pretax margin was (4.8%) in the
2002 period compared with (2.9%) in the 2001 period.
The Company's income tax benefit for the 2002 period was $2.2 million, or
35.9% of loss before income taxes. The Company's income tax benefit for the 2001
period was $1.4 million, or 32.8% of loss before income taxes. In both periods
the effective tax rate differs from the expected combined tax rate for a company
headquartered in Iowa because of the cost of nondeductible driver per diem
expense absorbed by the Company. The impact of the Company's paying per diem
travel expenses varies depending upon the ratio of Company drivers to
independent contractors and the Company's pretax earnings.
As a result of the factors described above, net loss was $4.0 million (2.0%
of revenue) in the 2002 period, compared with $2.9 million (3.0% of revenue) in
the 2001 period.
Page 14
Liquidity and Capital Resources
The size of the Company's business has decreased over the past three years.
During this period, the Company has reduced debt and invested in new revenue
equipment to replace some of the older equipment disposed. New equipment has
been financed in recent years with borrowings under installment notes payable to
commercial lending institutions and equipment manufacturers, borrowings under
lines of credit, cash flow from operations, and equipment leases from
third-party lessors. The Company also has obtained a portion of its revenue
equipment fleet from independent contractors who own and operate the equipment,
which reduces overall capital expenditure requirements compared with providing a
fleet of entirely Company-owned equipment. The number of owner-operators has
decreased over the past two years. The Company's primary sources of liquidity
currently are funds provided by operations and borrowings under credit
agreements with financial institutions and equipment manufacturers. The Company
reduced its borrowing by $2.5 million during the quarter. The Company has
experienced a recent decrease in the ratio of its current assets to current
liabilities, primarily as a result of a decrease in trade receivables and an
increase in current maturities of long-term debt. The increase in current
maturities resulted from a restructuring of the Company's financing agreement
with LaSalle Bank. Management expects this trend to continue in future periods
until the Company returns to profitability. Management believes that its sources
of liquidity are adequate to meet its currently anticipated working capital
requirements, capital expenditures, and other needs at least through 2003.
Net cash provided by operating activities was $6.6 million for the nine
months ended September 30, 2002. The Company's principal uses of cash from
operations are to service debt and internally finance accounts receivable.
Customer accounts receivable increased $3.8 million for the nine months ended
September 30, 2002. The average age of the Company's accounts receivable was
approximately 33.8 days in the 2002 period versus 37.0 days in the 2001 period.
Net cash provided by investing activities of $3.0 million in the 2002
period related primarily to proceeds of sales of revenue equipment net of
purchases of revenue equipment. The Company expects capital expenditures
(primarily for revenue equipment and satellite communications units), net of
revenue equipment trade-ins, to be approximately $3.4 million during the
remaining three months of 2002. Such projected capital expenditures are expected
to be funded with a combination of cash flow from operations and borrowings.
Net cash used in financing activities of $9.7 million for the nine months
ended September 30, 2002, consisted primarily of principal repayments, net of
borrowings, made under the Company's line of credit and long-term debt
obligations.
At September 30, 2002, the Company had outstanding long-term debt
(including line of credit and current maturities) of approximately $44.7
million, most of which was comprised of obligations for the purchase of revenue
equipment. Approximately $26.7 million consisted of borrowings from financial
institutions and equipment manufacturers and $18.0 million was the amount owed
under the Company's revolving credit facility. Interest rates on this debt range
from 3.2% to 7.5% with maturities through 2009.
The Company is party to a financing agreement with LaSalle Bank which
expires on December 31, 2004, and provides for automatic one-year renewals under
certain conditions. The agreement provides for a term loan, a revolving line of
credit, and a capital expenditure loan. At September 30, 2002, the term loan had
a balance of $15.2 million, and was payable in equal monthly installments of
$219,000 in principal. The revolving line of credit allows for borrowings of up
to 85 percent of eligible receivables, or approximately $12.8 million at
September 30, 2002, on which the Company had drawn approximately $10.2 million,
including the $7.2 million letters of credit discussed below. The capital
expenditure loan allows for borrowing up to 80 percent of the purchase price of
revenue equipment purchased with such advances provided borrowings under the
capital expenditure loan are limited to $2.0 million annually, and $4.0 million
over the term of the agreement. At September 30, 2002, the amount due under the
capital expenditure loan was $1.2 million. The combination of all loans with
LaSalle Bank cannot exceed $32.5 million.
The financing agreement also includes financing for letters of credit. At
September 30, 2002, the Company had outstanding letters of credit totaling $7.2
million for self-insured amounts under its insurance programs. These letters of
credit directly reduce the amount of potential borrowings available under the
financing agreement discussed above.
Page 15
All borrowings under this financing arrangement bear interest at the bank's
prime rate, and the Company is required to pay a facility fee on the financing
agreement of .25% of the maximum loan limit ($32.5 million). Borrowings under
the agreement are secured by liens on revenue equipment, accounts receivable,
and certain other assets.
The financing arrangement with LaSalle Bank also requires compliance with
certain financial covenants, including compliance with a minimum tangible net
worth, capital expenditure limits, and a fixed charge coverage ratio. In May
2002, the tangible net worth and fixed charge coverage covenant requirements
were amended. The Company was in compliance with all covenants, as amended, at
September 30, 2002. In October 2002 the arrangement with LaSalle Bank was
amended to provide more lenient compliance terms through September 30, 2003.
Equipment financing provided by a manufacturer contains a minimum net worth
requirement which the Company was in compliance with at September 30, 2002.
Contractual Obligations and Commercial Commitments
The following tables set forth the contractual obligations and other
commercial commitments as of September 30, 2002:
Principal Payments Due by Year
(In Thousands)
Less than After
Contractual Obligations Total One year 2-3 years 4-5 years 5 years
- -----------------------------------------------------------------------------------------------------------------------
Long-term debt $ 44,741 $ 11,707 $ 22,342 $ 9,895 $ 797
Operating leases 449 399 50 - -
-----------------------------------------------------------------------
Total contractual cash obligations $ 45,190 $ 12,106 $ 22,392 $ 9,895 $ 797
=======================================================================
The Company had no other commercial commitments at September 30, 2002.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make decisions based upon estimates, assumptions, and factors it
considers as relevant to the circumstances. Such decisions include the selection
of applicable accounting principles and the use of judgment in their
application, the results of which impact reported amounts and disclosures.
Changes in future economic conditions or other business circumstances may affect
the outcomes of management's estimates and assumptions. Accordingly, actual
results could differ from those anticipated. A summary of the significant
accounting policies followed in preparation of the financial statements included
in this Form 10-Q is contained in Note 1 of the consolidated financial
statements included in the Company's Form 10-K for the year ended December 31,
2001. Other footnotes in the Form 10-K describe various elements of the
financial statements included in this Form 10-Q and the assumptions on which
specific amounts were determined.
The Company's critical accounting policies include the following:
Revenue Recognition
The Company generally recognizes operating revenue when the freight to be
transported has been loaded. The Company operates primarily in the
short-to-medium length haul category of the trucking industry; therefore, the
Company's typical customer delivery is completed one day after pickup.
Accordingly, this method of revenue recognition is not materially different from
recognizing revenue based on completion of delivery. The Company recognizes
operating revenue when the freight is delivered for longer haul loads where
delivery is completed more than one day after pickup. Amounts payable to
independent contractors for purchased transportation, to Company drivers for
wages, and other direct expenses are accrued when the related revenue is
recognized.
Page 16
Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided by
use of the straight-line and declining-balance methods over lives of 5 to 39
years for buildings and improvements, 5 to 7 years for tractors and trailers,
and 3 to 10 years for other equipment. Tires purchased as part of revenue
equipment are capitalized as a cost of the equipment. Replacement tires are
expensed when placed in service. Expenditures for maintenance and minor repairs
are charged to operations, and expenditures for major replacements and
betterments are capitalized. The cost and related accumulated depreciation on
property and equipment retired, traded, or sold are eliminated from the property
accounts at the time of retirement, trade, or sale. In accordance with industry
practices, the gain or loss on retirement or sale is included in depreciation
and amortization in the consolidated statements of operation. Gains on trade-ins
are deferred and reduce the basis of the new asset.
Estimated Liability for Insurance Claims
Losses resulting from personal liability, physical damage, workers'
compensation, and cargo loss and damage are covered by insurance subject to
certain deductibles. Losses resulting from uninsured claims are recognized when
such losses are known and can be estimated. The Company estimates and accrues a
liability for its share of ultimate settlements using all available information.
The Company accrues for health insurance claims reported, as well as for claims
incurred but not reported, based upon the Company's past experience. Expenses
depend on actual loss experience and changes in estimates of settlement amounts
for open claims which have not been fully resolved. However, final settlement of
these claims could differ materially from the amounts the Company has accrued at
period-end.
Impairment of Long-lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net undiscounted cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less the costs to sell.
New Accounting Pronouncements
In June 2002, the FASB issued Statement No. 146 (FAS 146), Accounting for
Costs Associated with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal activities.
Under FAS 146, such costs will be recognized when the liability is incurred,
rather than at the date of commitment to an exit plan. FAS 146 is effective for
exit or disposal activities that are initiated after December 31, 2002, with
early application permitted. The Company does not expect the adoption of FAS 146
to have a material effect on the financial statements.
Page 17
Item 3. Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to market risks from changes in (i) certain interest
rates on its debt and (ii) certain commodity prices.
Interest Rate Risk
The Company's financing agreement with LaSalle Bank, provided there has
been no default, carries a variable interest rate based on LaSalle's prime rate.
In addition, approximately $22.3 million of the Company's other debt carries
variable interest rates. This variable interest exposes the Company to the risk
that interest rates may rise. The remainder of the Company's other debt carries
fixed interest rates and exposes the Company to the risk that interest rates may
fall. At September 30, 2002, approximately 90% of the Company's debt carries a
variable interest rate and the remainder is fixed. Each one percentage point
increase or decrease in interest rates effects the Company's pretax loss by
approximately $447,000, assuming the $44.7 million outstanding at September 30,
2002 of which 90% carries variable rates.
Commodity Price Risk
The Company in the past has used derivative instruments, including heating
oil price swap agreements, to reduce a portion of its exposure to fuel price
fluctuations. During the quarter ended September 30, 2002, the Company had no
such agreements in place. The Company does not trade in these derivatives with
the objective of earning financial gains on price fluctuations, nor does it
trade in these instruments when there are no underlying transaction related
exposures.
Item 4. Controls and Procedures.
Within 90 days prior to the date of this report, an evaluation was
performed under the supervision and with the Company's management, including its
Chief Executive Officer and its Chief Financial Officer of the effectiveness of
the design and operation of the Company's disclosure control and procedures.
Based on that evaluation, the Company's management, including its Chief
Executive Officer and Chief Financial Officer, concluded that the Company's
disclosure controls and procedures were effective as of September 30, 2002.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
September 30, 2002, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Page 18
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
No reportable events or material changes occurred during the quarter for
which this report is filed.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Page 19
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description
3.1 * Articles of Incorporation.
3.2 * Bylaws.
4.1 * Articles of Incorporation.
4.2 * Bylaws.
10.1 * Outside Director Stock Plan dated March 1, 1995.
10.2 * Incentive Stock Plan adopted March 1, 1995.
10.3 * 401(k) Plan adopted August 14, 1992, as amended.
10.4 * Form of Agency Agreement between Smithway Motor Xpress, Inc. and its independent
commission agents.
10.5 * Memorandum of officer incentive compensation policy.
10.6 ** 1997 Profit Incentive Plan, adopted May 8, 1997.
10.7 *** Amendment No. 2 to Smithway Motor Xpress Corp. Incentive Stock Plan, adopted May 7,
1999.
10.8 **** Form of Outside Director Stock Option Agreement dated July 27, 2000, between Smithway
Motor Xpress Corp. and each of its non-employee directors.
10.9 + New Employee Incentive Stock Plan, adopted August 6, 2001.
10.10 + Amended and Restated Loan and Security Agreement dated December 28, 2001, between
LaSalle Bank National Association, Smithway Motor Xpress, Inc., as Borrower, and East West
Motor Xpress, Inc., as Borrower.
10.11 + Letter Agreement dated August 6, 2001, between Smithway Motor Xpress, Inc. and Donald
A. Orr.
10.12 ++ First Amendment to Amended and Restated Loan and Security Agreement dated May 10,
2002, between LaSalle Bank National Association, Smithway Motor Xpress, Inc., as
Borrower, and East West Motor Express, Inc., as Borrower.
- ---------------------------
* Incorporated by reference from the Company's Registration Statement on Form S-1, Registration No. 33-90356,
effective June 27, 1996.
** Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the period ended March 31,
2000. Commission File No. 000-20793, dated May 5, 2000.
*** Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the period ended June 30,
1999. Commission File No. 000-20793, dated August 13, 1999.
**** Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the period ended September
30, 2000. Commission File No. 000-20793, dated November 3, 2000.
+ Incorporated by reference from the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2001. Commission File No. 000-20793, dated March 28, 2002.
++ Incorporated by reference from the Company's Quarterly Report on Form 10-K for the period ended June 30,
2002. Commission File No. 000-20793, dated August 14, 2002.
Page 20
(b) Reports on Form 8-K.
(i) Report on Form 8-K, dated August 14, 2002, reporting that the Company
furnished certifications solely pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 to accompany the Company's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2002.
Page 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SMITHWAY MOTOR XPRESS CORP.,
a Nevada corporation
Date: November 14, 2002 By: /s/ G. Larry Owens
------------------------------
G. Larry Owens
Executive Vice President, Chief Administrative
Officer, and Chief Financial Officer, in his
capacity as such and on behalf of the issuer.
CERTIFICATIONS
I, William G. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarterly
period ended September 30, 2002, of Smithway Motor Xpress Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations, and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures for the
registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board or directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ William G. Smith
----------------------------------------
William G. Smith
Chief Executive Officer
Page 22
I, G. Larry Owens, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarterly
period ended September 30, 2002, of Smithway Motor Xpress Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations, and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures for the
registrant and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board or directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize, and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ G. Larry Owens
----------------------------------------
G. Larry Owens
Chief Financial Officer
Page 23